Is a degree worth it, by the numbers

In short

A friend of mine once asked me if college was worth the money, and I told him I could not answer until I saw his numbers. You have probably felt that same knot in your stomach when a tuition bill lands on the table. Start by finding out what the degree will really cost after grants and scholarships, since that is the figure you will pay, not the sticker price. Then look up what people with that degree and that job actually earn, using official government pay data. Compare the extra pay to the total cost, including the years you spend not working. Keep your loan payment to a size your first paycheck can carry. Done honestly, this takes an afternoon, and it can save you a decade of worry.

The whole of it

What it is

I once watched a young man sign loan papers with a smile, and I do not think he could have told you what he owed. You may be in a spot like his, or you may be helping someone you love who is. Asking whether a degree is worth it means comparing two things. One is what the degree costs. The other is what it adds to your life over the years.

The cost has more parts than most folks count. There is tuition and fees, of course. There are books, housing, food, and travel. Then there is the quiet cost that never shows on a bill. That is the pay you give up while you sit in class instead of at a job. Economists call this the opportunity cost, which just means the value of the road you did not take.

The gain has parts too. The plainest one is higher pay. But a degree can also open doors that stay shut without one, such as licensed jobs in teaching, nursing, or engineering. And some of the gain is not money at all. You may want the learning itself, and that is a fine reason. This guide sticks to dollars, because dollars are what a loan asks you to repay.

How it works

A neighbor of mine paid for her son's schooling by taking on extra shifts, and she told me the hardest part was not knowing when the spending would stop. Let me lay out how the money flows so you can see it whole.

First comes the price. Schools post a sticker price, but many students pay less because of grants, which are gifts you do not repay, and scholarships. What is left is your net price. You cover it with savings, work, family help, or loans.

A loan is money you borrow now and pay back later with interest. Interest is the fee for using someone else's money. On some federal student loans, interest starts building while you study. That means the balance can be larger on graduation day than the amount you borrowed. Federal loans also come with tools private loans often lack, such as income driven repayment plans, which tie your monthly bill to what you earn. The rules for these change, so read the current terms at StudentAid.gov, the official site of the U.S. Department of Education's Federal Student Aid office.

After you leave school, two clocks run. One is your repayment clock, ticking off months until the loan is gone. The other is your earnings clock, showing how much extra you make each year because of the degree. A degree pays for itself when the earnings clock has covered the total cost. It keeps paying after that.

The numbers, and where to find yours

You have probably noticed that headlines love big averages, and averages hide a lot. Your own numbers matter more. Here is where to find them.

For your net price, use the College Scorecard at collegescorecard.ed.gov, run by the U.S. Department of Education. It lists average costs, graduation rates, and what former students earn, school by school. Every college must also post a net price calculator on its website. You can use it to get an estimate before you apply.

For pay in the job you want, use the Occupational Outlook Handbook from the U.S. Bureau of Labor Statistics at bls.gov/ooh. It tells you the median pay, the education the job asks for, and how the job market looks. The median is the middle figure, where half earn more and half earn less.

For the loan side, use the loan simulator at StudentAid.gov. It shows a monthly payment under each plan. Federal loan interest rates are set by law each year, and the current rate for undergraduate loans is the current figure, which the official source publishes each year. Borrowing caps for federal loans are also set by law, and the yearly cap for a dependent first year undergraduate is the current figure, which the official source publishes each year. Check the date on any figure you use.

A worked example

I want to tell you about a woman I will call Maria, because a story sticks better than a rule. Maria is eighteen. She is deciding between a four year degree and going straight to work. All the figures below are plain numbers I made up to show the arithmetic, so please swap in your own.

Maria's net price is 12,000 dollars a year after grants. Over four years, that is 4 times 12,000, which equals 48,000 dollars. She also gives up wages while in school. Say a job would have paid her 30,000 dollars a year. Over four years, that is 4 times 30,000, or 120,000 dollars in lost pay. Her total cost is 48,000 plus 120,000, which comes to 168,000 dollars.

Now the gain. Suppose the job she wants pays 60,000 dollars a year with the degree, versus 30,000 without it. The extra pay is 60,000 minus 30,000, or 30,000 dollars a year. To cover the 168,000 dollar cost, divide 168,000 by 30,000. That gives 5.6 years of working after graduation. Add the four years of school and she breaks even about ten years after she starts. After that, the extra pay is hers to keep.

Now the loan. Say Maria borrows the full 48,000 dollars at 6 percent and repays it over ten years. That is 120 monthly payments. The monthly rate is 6 percent divided by 12, which is 0.5 percent, or 0.005. The standard payment formula is the loan times the monthly rate, divided by 1 minus (1 plus the monthly rate) raised to the power of negative 120. That works out to 48,000 times 0.005, which is 240, divided by 1 minus 1.005 to the power of negative 120. The bottom part is about 0.4506, so the payment is 240 divided by 0.4506, or about 532.65 dollars. I round it to 533 dollars a month. The loan simulator at StudentAid.gov will let you check the same kind of math.

Now her paycheck. Maria earns 60,000 dollars a year before tax. Divide by 12 and you get 5,000 dollars a month. That is her gross pay, meaning the amount before anything is taken out. What she keeps depends on where she lives and how she files, so I will not guess at it here. Her payment of 533 dollars is 533 divided by 5,000, or about 10.7 percent of her gross pay. Her real share of take home pay will be higher than that, so she should run her own after tax figure. Had she borrowed twice as much for the same job, the payment would double, to about 1,065 dollars. That is 1,065 divided by 5,000, or about 21 percent of gross pay. That would squeeze her hard.

The lesson is plain. The same degree can be a good deal or a bad one, depending on the price and the pay it leads to.

Where it goes wrong

A man I know borrowed for a program and never checked what its graduates earned. He found out the hard way. You can avoid his fix by watching for a few traps.

The first trap is trusting averages. A national figure for all degree holders says little about your major at your school. Use the school level pay data in the College Scorecard.

The second is forgetting the years without pay. Many people count tuition and skip lost wages, which makes a degree look cheaper than it is.

The third is borrowing more than the job will pay back. A simple guard is to compare your total loans to your likely first year pay before you sign anything. Borrow less than that, and you leave yourself room.

The fourth is not finishing. Owing money without the degree is the worst spot of all. Look up the graduation rate for any school you consider, and ask what help it gives students who are struggling.

The fifth is ignoring cheaper roads. Two years at a community college and then a transfer can cut the price a great deal. Working while you study can too. Ask each school what credits it will accept.

Last, some good careers do not need a degree at all. Trades, apprenticeships, and certificate programs pay well in many places. The Occupational Outlook Handbook lists the usual training for each job, so you can compare.

Questions to answer before you leave this page

What is the net price of the school you are considering, after grants and scholarships, and did you check it on the College Scorecard? What will you give up in wages while you study, and did you add it to the cost? What does the Occupational Outlook Handbook say the job you want pays, and what education does it ask for? How much will you borrow, and how does that compare to your likely first year pay? What would your monthly payment be on the loan simulator, and can your paycheck carry it with room to spare? Does the school's graduation rate give you confidence you will finish? And is there a cheaper road to the same job that you have not looked at yet?